Is the corona bear market finally over?

The stock market has seen one of its fastest bear market declines ever, with fears over the coronavirus pandemic dragging the price down more than 35% Dow Jones industry average ( ^ DJI 0.00% ) in just a month. The decline was not only steep, but also psychologically draining as small rallies gave way to larger falls day by day. All along, investors have wanted to know when the bottom will be reached.

Last week, the Dow and other major market benchmarks finally saw a solid recovery. As of March 26, the Dow was up more than 20% from its March 23 lows, prompting some to declare the end of the coronavirus-inspired bear market and the beginning of a new bullish phase for stocks. Here we take a closer look at whether the bottom has been reached — and offer some thoughts on how investors should decide if it’s safe to return to the stock market.

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The big debate

No investor wants buy shares just before a big move down in the market, so it’s natural that people are reluctant to put new money into stocks right now. Many investors believe there’s still a lot more downside, even after the market’s declines over the past month. Here are some of the reasons:

  • The first quarter earnings season is about to begin and the impact of the coronavirus is becoming more apparent than ever. For many hard-hit industries, including retail, airlines, travel and manufacturing, the numbers are likely to be both scary and sobering.
  • It is unclear whether the pandemic will come under control. Case numbers continue to rise in the US and across Europe, and there may not be the political will to adhere to mitigation measures long enough to avoid a further increase in the rate of spread of COVID-19.
  • The stresses on the financial system have spread beyond the stock market. Bond markets face fresh strains as liquidity concerns mount. Some also fear an impact on other financial markets – as we saw with the collapse in crude oil prices.
  • Even if the immediate threat of coronavirus ends, there could be a long period of adjustment before economic activity returns to normal levels. In travel, for example, airlines must reinstate canceled flights in their schedules and passengers must purchase plane tickets. Similarly, manufacturing companies must gradually restore operations while remaining uncertain whether consumer demand will pick up in time to justify larger inventories. The necessary ramp-up phase could take longer than most people realize.

At the same time, there are many bullish arguments as to why the stock market has already bottomed:

  • The speed of the market’s decline – and its subsequent sharp rebound – had the appearance of slow motion.lightning crash“driven by algorithmic trading activity. Even if fundamental business conditions remain weak, the argument goes, stock prices will not necessarily keep falling back to these artificially low levels.
  • Many market participants believe that investors factor worst-case scenarios into their stock expectations. Unless you think the coronavirus will have a lasting impact on markets for years to come, rising optimism amid slowing case growth should support stock prices.
  • Stay-at-home orders will create pent-up demand for many goods and services, and consumers will eventually want to make up for lost time. That could create a temporary boom after the worst of the pandemic and bolster stocks of the companies hardest hit by the crisis.

My answer: who cares?

I’m afraid I don’t know if the market has bottomed. I cannot predict whether a new crisis will emerge, driving stock prices lower, or whether a quick resolution to the coronavirus pandemic will restore confidence.

What I do know, however, is that I haven’t changed the strategy I’ve been using for years. For long-term investors, the entire premise of using short-term market timing to try and wait for the stock market to bottom before buying stocks is flawed. If you have cash to invest at this point, you’re already getting a huge bargain compared to prices as recently as January and early February. Making the perfect purchase has some psychological value, but the difference in your long-term returns from buying at current prices versus paying 5% less or 5% more just isn’t that big.

The easiest way to overcome your fear of further declines is to invest your available money in several parts. For example, you could take a third of your investment capital and buy the stocks you like now. From there, you can either commit to investing the second and third parts of your money at fixed dates in the future, regardless of whether the stock market goes up or down from here. Alternatively, you could set levels that the market must fall to before investing the rest of your available money.

With this strategy, you don’t have to worry about hitting the exact bottom. At least by investing in multiple installments some Your money will go near the bottom. But more importantly, you make sure you’re investing money where it will benefit you more in the long run — rather than waiting for a bottom that may already have been reached.

You can do it!

If you are afraid to invest now, you are not alone. But regardless of whether we’ve already bottomed out or whether more declines are ahead, you should create an investment strategy to invest money in Best performing stocks or a stock ETF like Vanguard Total Stock Market (VTI 1.43% ) will likely pay off in the long run – while the wait could leave you on the sidelines if the market continues to recover from its bear market decline.

This article represents the opinion of the author, who may disagree with the “official” endorsement position of a Motley Fool premium advisory service. We are colourful! Challenging an investing thesis — including one of our own — helps us all think critically about investing and make decisions that help us be smarter, happier, and wealthier.

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